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Carson Block Sued Over $14 Million SEC Whistle-Blower Award

·2 min read

(Bloomberg) -- Short seller Carson Block was sued for allegedly failing to share a $14 million whistle-blower award he received from the US Securities and Exchange Commission for exposing an ongoing fraud.

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Kevin Barnes said in a lawsuit filed Tuesday in New York state court that he co-authored the report that netted Block and his firm Muddy Waters LLC the March 2022 award. Barnes accused Block of breach of partnership and is seeking half of the amount.

“Defendants have refused to compensate Barnes from the award or provide a reconciliation of such funds,” the lawsuit said. “Moreover, defendants have wrongfully asserted exclusive control over the report and excluded Barnes from transparency into the SEC determination process, resulting in defendants’ negligently prosecuting the matter.”

A representative for Block didn’t have an immediate comment.

The SEC’s March 11 order determining the award claims doesn’t identify the fraud or its whistle-blowers. According to the order, which mentions two claimants for the award, the first claimant emailed a copy of the report to an SEC enforcement attorney three days after it was published online and a month before the regulator opened its investigation.

A second person, identified as Claimant 2, didn’t send the report to the SEC. Instead, the person claimed to be the primary author of the report and argued that its media coverage should have been enough to tip off the SEC to its fraud claims.

The SEC credited both claimants as authors of the report, but found the second claimant wasn’t eligible for the award because they didn’t provide the report directly to the commission under its whistle-blower rules. It awarded the $14 million to Claimant 1.

(Updates to include details from the SEC order in fifth paragraph.)

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